Cost of Chip Cards is Double That of Magnetic
Stripe
Ninety percent of U.S. financial institutions either have begun
issuing chip (EMV) debit cards or currently plan to do so by the
end of 2015, according to the 2015 Debit Issuer Study commissioned
by PULSE. Based on these plans, 25 percent of U.S. debit cards –
approximately 71 million cards – will be migrated to chip by the
end of 2015. The percentage is expected to rise to 73 percent by
the end of 2016 and 96 percent by the end of 2017.
“The 2015 Debit Issuer Study provides the most compelling
evidence so far that we are quickly approaching the end of
magnetic-stripe-only cards and entering the era of chip cards,”
said Steve Sievert, Executive Vice President of Marketing and
Communications for PULSE, one of the nation’s leading debit/ATM
networks. “With fraud continuing to be a major concern among
cardholders and a top priority for financial institutions, the
issuance of chip cards represents a major step toward reducing
losses from counterfeit cards.”
Majority of issuers plan accelerated migration
While most financial institutions plan to begin issuing chip
cards by the end of this year, the full rollout will take time. The
majority of issuers (62 percent) plan to implement chip debit cards
using an accelerated migration strategy.
That approach includes combining natural reissuance when their
account holders’ debit cards expire, with a targeted reissuance to
heavy card users, international travelers and other customers who
request a chip card. The other approaches are natural migration
(used by 23 percent of issuers) and mass migration (used by 15
percent).
As required by Regulation II, issuers will include the
application identifier (AID) for at least two unaffiliated networks
on their chip debit cards, with most planning to make chip-and-PIN
the preferred approach for their cardholder verification
method.
Chip card cost
Financial institutions estimate the cost of a chip debit card
will be double that of a standard magnetic-stripe card. Large banks
report the lowest average cost of $2.17 per chip card, while credit
unions have the highest average cost at $2.90 per chip card.
According to the study, 71 million debit cards will be reissued
as chip cards this year. Based on the higher cost of chip cards,
financial institutions will spend an incremental $69 million to
replace magnetic-stripe cards with chip cards in 2015 and $266
million overall for the entire migration period. 1
Migration to chip debit cards in the U.S. is motivated by
increasing concerns about data breaches and has been facilitated by
resolution of the barriers to chip debit card implementation,
including the requirements of Regulation II for merchant routing
options. Financial metrics are not driving chip card issuance. Only
56 percent of financial institutions have built a business case to
support issuance of chip cards, according to the study.
“The industry’s migration to chip debit cards is not motivated
by the promise of profits,” said Tony Hayes, a partner at Oliver
Wyman who co-led the study. “Instead, issuers report that they are
investing to help safeguard cardholder information, enhance the
integrity of the overall payment system and protect their own
reputation.”
Fraud continues to be a top priority
More than 70 percent of issuers cite fraud as a key challenge
for their debit business. Every financial institution participating
in the study reported their cards were associated with a data
breach in 2014. However, less than one percent of all cards
experienced fraudulent activity.
Overall, issuers reported losses of 0.7 basis points to fraud
when the debit card was used with a PIN and 6.1 basis points when
the card was used with a signature. These reported loss rates
translate into 0.3 and 2.2 cents per transaction, on average, for
PIN and signature debit, respectively.
During the past decade, PIN debit loss rates reported by issuers
have stayed constant (from 0.6 to 0.7 basis points), while
signature fraud loss rates have increased by 30 percent (from 4.7
basis points in 2005 to 6.1 basis points in 2014).
Issuers expect signature debit fraud to increase and PIN debit
fraud to remain stable as the industry ramps up chip card
conversion. They anticipate lower fraud rates, however, once the
more secure chip debit cards are fully adopted.
Chip card resources are available
As institutions migrate their debit portfolio to chip cards, it
is critical to ensure a positive cardholder experience during the
conversion. To support these outreach efforts, PULSE has produced a
video to help inform cardholders about the benefits of chip cards
and how they work at the point of sale and ATMs.
In addition to the video, PULSE has resources available on its
Debit Resource Center, including a white paper that outlines tips
for implementing a cardholder communication strategy when migrating
to chip cards.
About the study
The 2015 Debit Issuer Study is the tenth installment in the
series and was conducted by Oliver Wyman, an independent management
consulting firm. The study provides an objective fact base on debit
card issuer performance and financial institutions’ outlook for the
debit card business. Seventy financial institutions – including
large banks, credit unions and community banks – participated.
Collectively, the participants issue approximately 147 million
debit cards, representing 47 percent of total U.S. debit
transactions. The sample is representative of the U.S. debit market
in terms of institution type, geography and debit network
participation.
About PULSE
PULSE, a Discover Financial Services (NYSE:DFS) company, is one
of the nation’s leading debit/ATM networks. Financial institutions,
merchants, processors and ATM deployers across the United States
and around the world depend on PULSE’s comprehensive suite of
products and services and its commitment to providing exceptional
client service, flexibility, security and superior economics. PULSE
also is a resource for debit education, research and knowledge
drawn from more than three decades of industry experience. For more
information, visit pulsenetwork.com.
1 This estimate does not include the additional cost of chip
debit cards that will be issued to new account holders or
replacement cards for chip cards that are lost, stolen or
compromised.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150910005540/en/
PULSEPatty Sendelbach, APR,
832-214-0395patty.sendelbach@pulsenetwork.com
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